Abstract/Description

In the run up to the June EU Agricultural Council meeting Agriculture...

Notes

In the run up to the June EU Agricultural Council meeting Agriculture
Commissioner Fischler called for real reform and 'no lame compromises... that
lead to more and not less red tape, continue to encourage farmers
to overproduce and expect the taxpayer to foot the bill'. He argued
that reform was needed now in order to lay the basis for a long
term, modern and sustainable EU agriculture which serves the interests
of farmers, consumer and taxpayers alike. He emphasised that in
order to achieve this it was essential to 'decouple farm aid from
production, reinforce our rural development policy and ensure that
in return for aid farmers produce the public goods our society nowadays
expects from them'.
In a question-and-answer memorandum released on June 10th 2003,
the Commission set out the case for further CAP reform. The memo
argues that both impending enlargement and the need for a new WTO
agreement on agriculture provide compelling reasons for implementing
reform now rather than later, but that the basic reason for reform
was that it was essential to the future of European agriculture,
since its main aim was to make European agriculture more competitive
and market orientated. The memo argues that the planned adjustments
'allow maximum flexibility in farmers' production decisions while
guaranteeing them income stability'. It highlights how the strengthened
rural-development component of the CAP is directly linked to the
introduction of higher food standards and forms a central component
of the CAP-reform process, and argues that farmers will benefit
from a strengthened rural-development policy through new 'incentive
payments for farmers who participate in schemes designed to improve
the quality of agricultural products and the production process'.
This will amount to:
up to €3,000
per holding for the next five years;
up to 70% of the costs of promotion of quality products through
producer-organisation campaigns;
direct aid of a maximum of €10,000 per holding per annum
for meeting new standards, which will be gradually reduced over
five years;
a maximum of €1,500 for farm advisory services;
support for the costs of improved animal welfare up to a maximum
of €500 per livestock unit.
The memo seeks to define decoupling as the provision of 'support
payments to farmers in a way that is not linked to what they produce'.
The Commission is de facto proposing a system of a 'single decoupled
income payment per farm'. 'This system would integrate existing
direct payments that a producer receives from various schemes into
this single payment, determined on the basis of historical references.
According to the Commission memo the main aim of decoupling is to
stabilise farmers' incomes. It is maintained that the system would
be simpler and would generate a greater market orientation in EU
agriculture. It would pay farmers not just for producing but for
the wider role that they play in society, providing other public
goods.
The memo maintains that decoupling will strengthen the EU's negotiating
position in the WTO through cutting the trade-distorting link between
subsidy and production. By contrast, direct aid payments are seen
as non-trade distorting, and therefore this form of CAP reform will
improve market opportunities for developing countries.
At the sectoral level dairy sector reform will bring the sector
into line with the wider CAP by introducing progressive increases
in quotas, accompanied by cuts in intervention prices and further
compensatory aid payments to dairy farmers. The memo argues that
by introducing the Agenda 2000 reforms sooner and by going further,
real progress can be made in addressing the imbalances in the dairy
sector, which have led to a falling share in the world market, without
undermining farm incomes. In the cereals sector further reform is
seen as essential to deal with market volatility and the appreciation
of the € against the US $.
Comment:
Since the decoupled system would be based on historical payments to farmers it would lock in existing trade distortions, but on the basis of a system of payments compatible with current WTO rules and thus not subject to challenge. From an ACP perspective this would freeze existing patterns of EU (over)production with the notable difference that this production would be available at much lower (world market) prices. This is likely to carry serious trade implications, particularly in those product areas where current distortions are greatest (e.g. sugar, dairy products and rice). Furthermore, this would occur at a time when, as a result of price reductions induced by the process of CAP reform, the value of trade preferences on the EU market granted to ACP countries would be greatly reduced as each tonne of CAP-covered agricultural produce exported by the ACP would receive less.